How (and Why) to Talk to Kids About Money
Nearly half of parents of kids ages four to eight don’t think their kids would understand any attempt at discussing finances. The result? It simply doesn’t come up.
And that’s how entire generations grow up and become strapped for cash, stuck in debilitating debt, and unsure of how to escape. Research from the Federal Reserve concludes that millennials, for example, are more educated than previous generations, but have “lower earnings, fewer assets, and less wealth.”
The good news is that today’s adults can reverse this trend. By talking to kids about money now, we can save them future financial headaches and heartaches. Here’s how.
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Use Current Events as a Relevant Starting Point
Your kids have already heard you talk a lot about this year’s upheaval. Discussing how it impacts personal finance can be a mere extension of that conversation.
What better time than now, when family and friends are financially navigating social unrest, economic doubt, global health events, and legislative volatility? Every adult your child knows is reaping the rewards (or juggling the repercussions) of their own past financial choices and our leaders’ actions.
It’s also the perfect time to observe and learn from wise people who are making moves now to give themselves more options amid future events.
And that’s lesson one: there will be more upheaval. Personal, local, regional, and yes, global incidents will continue to shake the foundations you and your kids lay. But the good news is that financial foundations can be built with flexibility in mind.
Pave the Way for Listening and Learning
Talking to your kids about money couldn’t be easier if you’re willing to put some advance thought into it.
Decide what you will and won’t discuss.
Write down a (flexible) plan of things to cover. Decide now how detailed you’d like to get. For example, you might use exact amounts to describe your past financial choices and how they impact your current situation. But you may not want to try to define compound interest quite yet.
With a plan, kids can ask specific questions, and receive specific numbers. Real amounts and timelines build trust, so be ready to be honest with your kids.
Choose times when kids are most relaxed.
Car rides, meals, and chore times are perfect opportunities to start talking about money. Don’t say “sit down, we need to have a talk.” Instead, make it an ongoing conversation by selecting routine times that can be repeated. Tell your youngsters you’ll be sharing more about money in general starting now, and you want them to share their ideas, too.
Choose age-appropriate concepts and terms.
You wouldn’t try to describe a person’s net worth or FICO score to a toddler, and you wouldn’t tell a high schooler to set up a lemonade stand. Age-suitable ideas ensure your lessons stick. Here are some ways to frame concepts for each age group.
Financial conversations for preschoolers:
- Teach preschoolers about delayed gratification, and how waiting sometimes leads to better experiences.
- Preschoolers can also learn the different names and values of coins, and how a pile of pennies, for example, can be worth less than a single quarter.
- Show youngsters this age how you value money by keeping it separate from toys, resisting the temptation to play with it, and watching it grow as they complete their first household chores.
Financial conversations for school-aged kids:
- School-aged children can begin understanding someone’s “reputation,” which can lead to easily grasping credit reports later on.
- They can also be taught what each household item is worth, and why.
- Another lesson for kids of this age group is the diverse retail products available at banks and how different accounts serve a person’s various goals.
- These ages are perfect for children to handle their own earnings and allowances:
- Introduce the concept of taxes by describing it. Then take a small portion of kids’ earnings and put that toward house maintenance or personal care items.
- Give kids the chance to open their first Statement Savings Account to deposit the rest and start earning interest.
- Cement the concept with a mental exercise: Offer to give your child a loan for a toy or gadget they desire. Describe the high cost of interest you plan to charge and how much they’d have to work to pay it off. Then discuss all the gadgets you, the lender, could afford by being patient and taking advantage of others’ impatience. Do they still want the doodad?
- Flip the script: ask your child if they would loan you some cash so you can satisfy your desire for some short-term gratification. Then, show how painful it is to pay that money back with a steep fee. Ask your child how it feels to be the one collecting, and which scenario offers more long-term satisfaction.
Financial conversations for teens:
- When kids become teenagers, it’s even more important to listen than to lecture. Allow them to earn, budget, spend, save, and even invest. Then, ask them regularly how this looks different during an economic crisis than in times of plenty.
- Have your teenager describe why certain industries are flourishing while others suffer. Fill in any gaps you notice in their assessment. Then, inquire about how this analysis can help them choose a career path that’s more agile or “recession-proof” than obvious ones.
- Allow your child to play the Stock Market Game. Then, instead of assuming they’ve learned everything they can, take the exercise a step further and craft an explanation of their investing strategies. Submit their work to InvestWrite, a contest where winners receive pizza parties, laptops, and even trips to New York City for sharing their tactics with the world.
Keep the conversation going throughout childhood, high school, and college years.
Congratulations. With the above conversational exercises, you’ve just built a wealth of memories from which to draw. Now, whenever you need to reopen a dialogue about personal finance with your child, you can start with “Remember when we…?”
And that’s the final step of solidifying your child’s financial literacy: continuing the conversation.
As you look to the future, here are some helpful mechanisms to help keep your child on track financially. This can include:
- The FMB blog. Subscribe for updates so you and your child get the latest, most relevant, and useful personal finance advice online.
- First Midwest Bank’s Statement Savings and Student Checking account. Kids feel empowered with their own real-world spending and savings tools.
- Online financial literacy games to play together regularly. Swap out Candy Crush and Fortnite for amusements that leave valuable lessons.
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- A beginner investing kit. Amazon offers one for $14 which includes a $20 starter credit toward one of 110 stocks kids will likely recognize, like Disney or Nintendo.
- Community for ongoing education and accountability. Kid-friendly Q&A forums like “Family Finances” on babycenter.com give kids examples of common real-life financial questions and their authentic answers – the kind of scenarios they wouldn’t even know to ask about. Under your supervision, allow youngsters to ask and answer questions based on their own curiosity and knowledge. And if a local financial education and accountability group doesn’t exist near you, help your child start one among friends through your local library.
Together, we can and will reverse the trends. The next generation can have more financial knowledge and skill than our generation. All we must do is start and keep the conversation going.